Newsletters - Past Issues

Hello Money Matters fans!

The end of summer approaches. Here are a few money articles for you to read over to get your mind thinking as we march into the late summer. 

Before we march in to the money stuff, I want to remind you that another Money Matters show airs first Thursday in September so that is 8th, noon PST so tune in. Our topic will be "Will we fall in the fall".

Markets have done bad things occasionally in the fall season. Will we have a repeat? Tune in! All past shows are available for download at no cost. 

Food for thought: "Where you go in life depends a lot on who you hitch your cart to"

I was invited to go to a summer BBQ loaded with VIPS to hob nob, shake hands, endorse and otherwise show my mug at the event.  I met a lot of fans and got a chance to hear some great feedback on my show and articles. I also took the oppurtunity to hitch my son, Kyle, up to some important contacts. Here is Kyle again with both a Congressman and Senator. I managed to fanangle a private tour and lunch at the Capitol in Sacramento with the Senator, one on one, just him and Kyle, with Dad thanking the Senator for making this happen. A great set up for my boy that will happen in September. I also met several elected officials which included some school board members, the head of  the Sheriff Department, an NID official, and the Senator and a Congressman, to name a few. I was asked to add my endorsement to a school board candidate which I gladly did after hearing her views on what she would do to help our kids. I shook a lot of hands and placed some ace cards in my pocket for future use. Yes I did..........

Hook your cart to successful people and go places! 

Kyle and the Senator-  A one on one lunch was set shortly thereafter with the Senator including a tour at the Capitol next month.

Now on to the money stuff!

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When debts become too burdensome to an economy in relation to historical averages, I call this occurrence/environment a “negative credit cycle”.

Some analysts might refer to it as a “credit-default” cycle. Sounds confusing but just think of it as a time when companies, individuals, municipalities, states and even entire countries have a harder time paying their bills. Defaults on IOU’s like bonds and notes start to rise and interest rates begin to reflect that rise in defaults by rising as well. This increase in rates reflects lenders demanding more interest as they begin to worry about being paid back when things turn south.

Look back at 2008/2009 for an example of a major negative credit cycle. There are minor negative credit cycles, major events and all points in between.

Is a new negative credit cycle beginning and if so how bad will it be?

According to Standard and Poor’s credit monitoring service, global credit defaults hit 100 meaning that a relatively high number of large corporations defaulted on what they owed.

That’s about 154 billion worth of debts may not be paid.

That figure is 50% higher than this time last year. Moodys, the other heavy weight credit analyzing company, estimates noninvestment grade debt will hit a default rate of over 6% by year end. At that pace, more than 200 good sized companies will go bankrupt by years end and that will surpass the previous all-time high set in 2009.

If that year sounds familiar, that was at the height of the credit crisis and banking blow up.

Simply put, if the Moody’s forecast is correct, conditions in the corporate credit markets will be worse this year than in 2009, and it was awful bad back then if you recall.

How big will the total default figure be?

Marty Fridson, called the “Dean” of corporate debt in New York, predicts a default figure nearing 2 trillion. That’s trillion with a “T”.

All this is happening strangely enough as the Dow is flirting with all-time highs, actually setting an all-time high just a week back.

So apparently we have a contradiction in the equity markets. Bond markets look to be bleeding red if Standard and Poors and Moody’s has their way, while stock market participants apparently see everything coming up roses.

Which is it?

Are we on the verge of a massive negative credit cycle or on the cusp of a new bull market reaching for all-time highs? One of these groups is wrong obviously, as we can’t have it both ways.

What does this tell the average investor beside everyone has an opinion, and because they are opinions and not fact, they can differ greatly?

It tells us to be cautious no matter what we do. With such differing and widely opposing views, apparently anything can happen and when it does, some folks are going to lose a lot of money while others stand to take that money and run with it.

If you don’t know which way to turn, what to buy and what to sell, an investor might consider reviewing their portion of cash in their portfolio in relation to equities. A higher cash position will tend to smooth out the bumps and reduce volatility. As always, consult with your investment professional to discuss options that may be better fit your risk tolerance.

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The Federal Reserve could potentially raise interest rates as soon as next month, New York Fed President William Dudley said, warning investors that they are underestimating the likelihood of increases in borrowing costs. “We’re edging closer towards the point in time where it will be appropriate, I think, to raise interest rates further,” Dudley, who serves as vice chairman of the rate-setting Federal Open Market Committee, said Tuesday on Fox Business Network. Asked whether the FOMC could vote to raise the benchmark rate at its next meeting Sept. 20-21, Dudley said, “I think it’s possible.”

So here we go again. The markets seem tethered by an invisible thread to what the Feds say and do, but mostly since what they say happens far more frequently then when they actually act, the “Fed Speak” has had tremendous sway on what markets do in its day to day movements.

Investors must be scratching their proverbial heads. One day the markets shoot higher on a particular news piece then the bottom falls out on some other news item.

It could be argued the markets react on both fundamental news and non-fundamental news which means it may not be so tied to what the economy is actually doing but tied to what the Federal Reserve is actually saying.

In my father’s day, stock markets generally reflected what was expected to happen in the economy and the businesses in it. More specifically it was said the stock market told us what would happen in advance, like six or nine months in advance. Good business news and growth in earnings bolster investor confidence and subsequently they bought stocks.

Fast forward to today, and the markets seem not only concerned about what businesses will do but what the monetary authorities will say and do as well.

If businesses have positive growth, investors may perceive the Federal Reserve will raise interest rates, which is what they do to cool off an overheating economy. This fear of rising rates may spur a selloff in stocks, the exact opposite of what traditional stock market reaction would be in the face of good news in the business sector. Conversely if businesses start to suffer, and the economy shows signs of weakening, investors my think the Feds will drop rates, which is generally good for stocks, and the markets may rise despite a poor business environment.

Case in point: New York Fed President Dudley’s remarks that rates could rise sooner than expected caused a significant sell off in stocks the day he made his speech. It is indeed a strange world we live in when the markets now react positively to negative business news and react negatively when businesses say they’re doing better.

This “opposite reaction” compared to what markets had done in years past may be caused by the Federal Reserve’s hyper activity in the markets of the world as they attempt to steer the economy where they think it should go. As the Feds have increased their activity and involvement in the economy over the decades in their belief they can control such a beast, it could be argued the cure may be worse than the disease.

All for now,

Marc

Need a financial advisor? Want to talk about your investments? Email me at mcuniberti@cambridgesecure.com.

I need a painter to paint my second story on my house? Know a painter? Email me.

Need deck refinishing?  Painting? My son Kyle will do it at half the cost. Email me

In other words, email me!

Jambo!

Money Matters airs tomorrow Thursday at noon, PACIFIC STANDARD TIME on KVMR FM 

Marc's Notes:

THE BREXIT

Wikipedia defines the Euro currency as the official currency of the Eurozone, of which 19 of the 28 member states of the European Union (EU). Recent news has covered the so called “Brexit” where the British people voted 52% to 48 % to leave the common currency agreement.

Global stock markets immediately illustrated the surprising move by Britain by falling in concert in the days following the announcement. The vote is not actually binding and Parliament could elect to ignore the will of the people and stay in the Euro. A renegotiation between Britain and Euro authorities might take place to try and reach a more palatable outcome then an outright exit or even another vote may be in the cards given the gravity of the situation.  An actual Brexit will take about 2 years to implement.

Only time will tell if Britain actually becomes the first nation to leave the EU but if it does, it may signal the beginning of some serious problems for the Euro. The more likely outcome however would be a shuffling of the existing members and a rework of the rules to better address the issues that may have led to Brexit in the first place and to prevent other nations from following suit.

At issue is the inherent problem of a common currency being used for differing economies. One could argue the only example of a common monetary representation in history is the use and acknowledgment of gold as a common unit of measure but the Euro is the first example in modern history of this type of concept being implemented.

The problem with a common currency is that each participating nation is inherently different then the next. Each nation has its unique levels of debt, trade levels, deficiencies, advantages and subsequent fiscal policies to handle such uniqueness.

Even the authorities that handle such policies and the people that make those decisions differ from country to country and therein lies the problem. One nation may have a strong balance sheet and a responsible fiscal administration while the next may border on fiscal irresponsibility. One nation might overspend while the next runs a balanced budget. In a world where each nation has its own currency, such differences in economies are addressed by each nations ability to borrow money in the public markets and how readily lenders are to pony up their money for government IOU’s. Simply put, the more irresponsible the country, the harder it is for them to borrow and the more they have to pay in interest to do so.

In a common currency situation however, such as the one we have with the Euro, the ability to borrow is centralized and equal. Being a common currency, the rules are the same for everyone. To grasp the concept of problem, imagine a group of people with differing credit scores all being allowed to borrow on the same terms and at the same rates.

Some would cry foul while others would reap the benefits. Such is the issue with the Euro. Responsible nations are crying foul for having to pick up the tab for others. Overspending nations want to renege or renegotiate on their debts by pulling out of the Euro and pay what they owe using their own currency obviously made easier made by using their own printing presses. Something which is far easier to do then pay back what they currently owe in Euros. 

Britain joined the European Economic Community in 1973 and hence the European Union in the 1990s. But Britain never fully accepted the legitimacy of European control over British institutions in a way that other EU members did. It refused, for example, to eliminate its internal border controls or the use of the common currency in question, the Euro dollar.

Even without direct involvement with the Euro currency, the ramifications of the Brexit are unknown but no doubt still serious. Should Britain set the example of how a nation could possible take an easier route by simply leaving the EU, other nations could eventually do the same. If enough nations leave, this could shake the whole concept of the Euro to its core.

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We have been talking about my recent trip to Japan and how amazing their systems are.

So here is a batting cage near Tokyo where my son is batting. Look carefully and you will see on the far wall a TV monitor the size of a man. The movie shown is the pitcher winding up and delivering the pitch. The timing is perfect which means the professional pitcher winds up and as he delivers the ball on the screen, the ball comes screaming out a hole next to the screen. Amazing!

They love their rock groups over there. Here is a photo booth that has lights that make you look like you are in a rock promo photo. No makeup was worn. It’s the lighting and the booth processing. Yours truly looks ridiculous I know!
 

Here is a cool museum with all sorts of visual gadgets that blow your mind. Here is my daughter Sadie standing on her finger! Is she really doing that?

Many of the Japanese are Buddhist or Shinto or both. They throw coins in these shrine bins and make a wish. Before anyone showed up, I, being an ignorant idiot, thought it was a recycle bin and tossed in a beer can. I was immediately arrested and flogged. These below are doing it the correct way. (It DID look like a recycle bin. Trust me)

This is Tokyo Tower. It was destroyed and rebuilt three times, twice by Godzilla and once by Mothra. I, being afraid of heights, forced myself to jump onto this glass panel.

Although many stood on it, I was the only one brave enough to jump on it. The thought of it breaking by the jumping impact was with me the whole way thru the act and that fear is also what kept anyone else from doing it. The view from the Tower is also below.

The Japanese subways are jammed full during rush hour. Note my wife and daughter totally crushed. The picture doesn’t do full justice. I could not even reach in my pocket and they cram in until sometimes it’s literally hard to breath. Note my sister in law who lives there not even phased and on her I phone. The second photo is people crammed against the door as the train pulls away. I hope they have good locks on those doors.

That does it for now but I encourage anyone who has the means to definitely make Japan an item on your bucket list!

All the best,

Marc

PS: Japan has negative interest rates on many of their bonds.

What does this mean? Keep reading ….